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United States

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

For the thirteen-week period ended: December 26, 2003

OR

C-COR.net Corp.

(Exact Name of Registrant as Specified in Charter)

(814) 238-2461

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes x No ¨

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.05 Par Value - 37,586,143 shares as of January 23, 2004.

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C-COR.net Corp.

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Independent Accountants’ Review Report

The Board of Directors and Shareholders

C-COR.net Corp.:

We have reviewed the condensed consolidated balance sheet of C-COR.net Corp. and subsidiaries as of December 26, 2003, the related condensed consolidated statements of operations for the thirteen-week and twenty-six week periods ended December 26, 2003 and December 27, 2002, and the related condensed consolidated statements of cash flows for the twenty-six week periods ended December 26, 2003 and December 27, 2002. These condensed consolidated financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of C-COR.net Corp. and subsidiaries as of June 27, 2003, and the related consolidated statements of operations, cash flows, and shareholders’ equity for the year then ended (not presented herein); and in our report dated August 8, 2003, we expressed an unqualified opinion on those consolidated financial statements. Our report discloses the Company’s adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective June 29, 2002. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of June 27, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

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PART I FINANCIAL INFORMATION

C-COR.net Corp.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

See independent accountants’ review report and notes to condensed consolidated financial statements.

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C-COR.net Corp.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

See independent accountants’ review report and notes to condensed consolidated financial statements.

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C-COR.net Corp.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

See independent accountants’ review report and notes to condensed consolidated financial statements.

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C-COR.net Corp.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

See independent accountants’ review report and notes to condensed consolidated financial statements

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C-COR.net Corp.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands except per share data)

(Unaudited)

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and, in the opinion of management, contain all adjustments (consisting only of normal, recurring adjustments except as noted) necessary to fairly present C-COR.net Corp.’s (the Company) consolidated financial position as of December 26, 2003 and the consolidated results of operations for the thirteen-week and twenty-six week periods ended December 26, 2003 and December 27, 2002. Operating results for the thirteen-week and twenty-six week periods ended December 26, 2003 are not necessarily indicative of the results that may be expected for the year ending June 26, 2004, due to the cyclical nature of the industry in which the Company operates, timing of recognizing revenues in our Broadband Management Solutions division, fluctuations in currencies related to its intercompany foreign currency transactions where settlement is anticipated, and changes in overall conditions that could affect the carrying value of its assets and liabilities. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Form 10-K for the fiscal year ended June 27, 2003.

The Company designs, manufactures, and markets network distribution and transmission products and provides services and operational support systems to operators of advanced hybrid fiber coax broadband networks. The Company operates in three industry segments: Broadband Communications Products, Broadband Network Services, and Broadband Management Solutions.

The Broadband Communications Products Division is responsible for research, development, management, production, support, and sales of advanced fiber optic and radio frequency equipment. The Broadband Network Services Division provides outsourced technical services, including network engineering and design, construction, activation, optimization, certification, maintenance, and operations. The Broadband Management Solutions Division is responsible for the development, integration, management, implementation, support and sales of operational support systems that focus on network services management and mobile workforce management solutions.

A detailed description of the Company’s significant accounting policies is set forth in the Notes to Consolidated Financial Statements of the Company’s Form 10-K for the fiscal year ended June 27, 2003 (fiscal year 2003).

Accounting for Employee Stock Award Plans

The Company accounts for its stock award plans in accordance with the provision of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” If charges for the Company’s stock plans had been determined based on the fair value method at the grant dates, as prescribed in Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” the Company’s net income (loss) and net income (loss) per share would have been as follows:

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Recently Issued Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities” which requires companies to consolidate certain types of variable interest entities. A variable interest entity is an entity that has inadequate invested equity at risk to meet expected future losses, or whose holders of the equity investments lack any of the following three characteristics: (i) the ability to make decisions about the entity’s activities; (ii) the obligation to absorb the entity’s losses if they occur; or (iii) the right to receive the entity’s future returns if they occur. FIN 46 is applicable immediately for all variable interests created after January 31, 2003. For all variable interest entities created before February 1, 2003, the provisions of FIN 46 are effective for financial statements issued for the first period ending after December 15, 2003. The adoption of FIN 46 had no effect on the Company’s financial position, results of operations, or cash flows.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected include mandatorily redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. Subsequently, FASB Staff Position 150-3 indefinitely deferred certain classification and measurement requirements of SFAS No. 150. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003 and must be applied to existing instruments for the first interim period beginning after June 15, 2003. The adoption of SFAS No.150 had no effect on the Company’s financial position, results of operations, or cash flows.

The Company estimates income taxes for each of the jurisdictions in which it operates. This involves estimating the Company’s actual current income tax payable and assessing temporary differences resulting from differing treatment of items, such as reserves and accruals, for tax and accounting purposes. Deferred taxes arise due to temporary differences in the bases of assets and liabilities and from net operating losses and credit carryforwards. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the Company’s statement of operations become deductible expenses under applicable income tax laws or loss or credit carryforwards are utilized. Accordingly, realization of deferred tax assets is dependent on future taxable income against which these deductions, losses and credits can be utilized. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Historical operating losses, scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies are considered in making this assessment. Earnings of foreign operations are reinvested in the business and no provision for domestic income tax or foreign withholding tax is made on such earnings until distributed.

As a result of the cumulative losses over the prior three years, management concluded during the third quarter of fiscal year 2003 that a valuation allowance against net deferred tax assets was appropriate and recorded an allowance as of that date. As of December 26, 2003, a full valuation allowance on the net deferred tax assets has been recorded, with the exception of certain net deferred tax assets in specific foreign jurisdictions. In addition, the Company expects to provide a valuation allowance on any future tax benefits until the Company can sustain a level of profitability that demonstrates its ability to utilize these assets. Income taxes for the quarter and year-to-date periods relate to certain foreign operations where it is expected that income will be subject to tax.

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Inventories include material, labor and overhead and are stated at the lower of cost or market. Cost is determined on the first-in, first-out method. Inventories as of December 26, 2003 and June 27, 2003 consisted of the following:

The Company has a two-year secured revolving credit financing agreement with a commercial lender. Borrowings under the financing agreement may be used for working capital and general corporate purposes. The financing agreement provides a commitment of up to an aggregate amount of $20,000. The financing agreement allows for the issuance of letters of credit and cash borrowings. Letters of credit outstanding are limited to no more than $6,000. Cash borrowings are limited by certain availability reserves and a borrowing base, primarily a percentage of eligible domestic trade accounts receivable, up to the facility’s maximum availability less letters of credit outstanding.

As security for the financing agreement, the Company has pledged the following collateral: trade accounts receivable, inventory, general intangibles, real estate, equipment, life insurance policies, and a portion of the stock of a wholly owned foreign subsidiary. The financing agreement contains a number of restrictive covenants, including covenants limiting incurrence of subordinate debt, disposal of collateral, and the payment of dividends (except stock dividends). The financing agreement contains no financial covenants.

The financing agreement is committed through November 6, 2004. Borrowings under the financing agreement bear interest at an applicable bank rate or LIBOR plus two and three-quarters percent (2.75%) per annum, payable monthly. The financing agreement required the payment of a facility fee of $150 at execution of the agreement, and requires a fee on the unused commitment of 0.375% per annum payable monthly and an administrative fee of $36 per annum. As of December 26, 2003, the Company had no borrowings outstanding under the financing agreement and letters of credit had been issued for $950 related to requirements under the Company’s workers compensation policies. Based upon the eligible borrowing base at December 26, 2003, available borrowings under the financing agreement were $10,411.

As a condition to closing on the financing agreement, the Company terminated its prior credit agreement with a bank, except that the Company continues to maintain letters of credit with the bank related to its workers compensation program, customer obligations, and equipment lease obligations. As of December 26, 2003, the aggregate amount of the letters of credit was $2,005. A cash compensating balance of $2,045 is maintained to secure the letters of credit, which has been classified as a current asset, as the terms for the letters of credit expire in less than one year.

Accrued liabilities as of December 26, 2003 and June 27, 2003 consisted of the following:

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Restructuring costs relate principally to employee severance and termination benefits and lease commitment costs resulting from the closure of facilities and other workforce reductions attributable to the Company’s efforts to reduce costs during prior fiscal years. An adjustment of $106 was made to reduce the restructuring accrual balance for changes in assumptions during the thirteen-week period ended December 26, 2003.

The following table provides detail on the activity and remaining restructuring accrual balance by category as of December 26, 2003.

Employee severance and termination benefit payments are being made on a weekly or bi-weekly basis, and as such, the Company anticipates payments for the remaining amounts accrued as of December 26, 2003 to substantially be paid out by June 26, 2004. The remaining amounts accrued as of December 26, 2003 related to contractual obligations will be paid out over their remaining term of 12 months, unless terminated early.

The Company’s primary sources of liquidity are cash on hand, cash flow from operations, and its revolving credit financing agreement.

Based on the restructuring initiatives implemented during fiscal year 2003, including the closing of the Company’s Manlius, New York manufacturing facility and Louviers, France operation, and taking into account projected sales and operating expenses, the Company expects to generate cash from operations during fiscal year 2004. The Company intends to continue initiatives to achieve a more cost-effective operation throughout fiscal year 2004. The Company believes that current cash and cash equivalent balances, as well as its financing agreement, will be adequate to cover operating cash requirements over the next twelve months. In addition, the Company sold most of its pre-petition trade claims in the bankruptcy cases of Adelphia Communications Corporation and affiliates on November 4, 2003 for an initial payment of $21,075 (see Note 14).

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The components of accumulated other comprehensive income, net of tax if applicable, are as follows:

The components of comprehensive income (loss) for the thirteen-week and twenty-six periods ended December 26, 2003 and December 27, 2002 are as follows:

The Company accounts for certain intercompany loans that are denominated in various foreign currencies as being permanent in nature, as settlement is not planned or anticipated in the foreseeable future. As such, foreign currency translation gains and losses related to these loans are excluded from net income (loss) and reported as a component of other comprehensive income (loss).

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Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus the dilutive effect of options and warrants. The dilutive effect of options and warrants is calculated under the treasury stock method using the average market price for the period. Net income (loss) per share is calculated as follows:

For the thirteen-week periods ended December 26, 2003 and December 27, 2002, stock options and warrants representing 2,363 and 6,731 common shares, respectively, were excluded from the diluted net income (loss) per share calculation because they were antidilutive. For the twenty-six week periods ended December 26, 2003 and December 27, 2002, stock options and warrants representing 3,759 and 6,623 common shares, respectively, were excluded from the diluted net income (loss) per share calculation because they were antidilutive.

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The Company operates in three industry segments: Broadband Communication Products, Broadband Network Services, and Broadband Management Solutions. Due to changes in the structure of the Company’s internal organizations affecting the composition of its reportable segments, the Company has restated the segment information for the thirteen-week and twenty-six week periods ended December 27, 2002, to conform to the current year presentation.

The “management approach” required under SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information,” has been used to present the following segment information. This approach is based upon the way the management of the Company organizes segments within an enterprise for making operating decisions and assessing performance.

The following costs and asset categories are not allocated to segments, and are reflected in the table as “unallocated items”:

Information about industry segments for the thirteen-week periods ended December 26, 2003 and December 27, 2002 is as follows:

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Information about industry segments for the twenty-six week periods ended December 26, 2003 and December 27, 2002 is as follows:

The Company and its subsidiaries operate in various geographic areas. The table below presents the Company’s operations in the following geographic areas: